Like the price of a barrel of oil, AT&T backhaul rates affect everyone—even you.

The Federal Communications Commission yesterday halted a plan by AT&T to raise prices for "special access" customers, a potential rate hike that could ultimately hit the wallets of businesses and cell phone users.

AT&T wanted to make the rate increase effective today, but the FCC suspended it for five months while it investigates further, noting that there is widespread opposition. "There are substantial questions regarding the lawfulness of AT&T’s tariff revisions that require further investigation," the FCC said. This move does not prevent the price increase in perpetuity but makes it possible that the FCC could at least soften the blow a bit.

What is special access? It's like the Internet equivalent of a barrel of oil, the price AT&T, Verizon, and CenturyLink charge other businesses for Internet bandwidth. Special access customers include the likes of Sprint and T-Mobile, who rely on their rivals for bandwidth. Special access rates can thus indirectly raise the prices paid by cell phone users, even those who aren't directly customers of AT&T.

Public Knowledge Senior VP Harold Feld explains it in this video from 2011:

Five Minutes with Harold Feld—Special Access: Too Special to be Competitive?

"Special access is supposed to be regulated to make sure it's affordable because anybody who relies on any kind of broadband for telecommunications, or for any kind of business, depends on some level on special access," Feld said. "Every time you buy anything that touches on telecommunications, you're basically paying a monopoly tax if the special access market doesn't work right. Every time you buy Internet access from somebody, if you're a business buying Web hosting, if you're using a cell phone and your company like Sprint or T-Mobile relies on those special access lines to take the information from the tower back to the cloud so you can use your smartphone, all of that depends on special access. When the special access market isn't working right, you pay more. It's like when oil prices go up."

If you want a more technical definition of special access, it's "telecommunications services/facilities that telecommunications companies are required to make available for resale to business customers, including rivals," Feld said. "That is what distinguishes them from 'general access' facilities and services that providers make available to the general public."

The FCC "substantially" deregulated the special access market "back in 2000 in the expectation that competition was just about to emerge and that deregulating critical input would not allow the telcos to totally crush the emerging competition," Feld has also noted. In a blog post last year, he succinctly described the state of the resulting "competitive" market: "As a result, the special access market remained an effective monopoly. As the Baby Bells consolidated, the vast majority of special access circuits fell under the control of AT&T, Verizon, and CenturyLink. To be clear, however, these companies do not overbuild and compete against each other—each maintains its local monopoly."

AT&T: Y’all are just confused

Back to the present day, AT&T "notified customers [in October] that it would no longer offer extended contracts—and the discounts that come with them," the Wall Street Journalreported at the time. "AT&T said that... it will stop offering contracts longer than 36 months for older types of connections, known as TDM [time-division multiplexing], because it plans to phase out the technology by 2020." This is part of AT&T's shift to an all-IP network.

In a blog post on Nov. 25, AT&T said it planned to make the price change effective on Dec. 10. "[W]e have taken a step to make sure that multi-year commitments we enter into today for aging TDM-based services reflect the ongoing transition to IP and do not extend beyond the expected completion of our transition in 2020," AT&T said.

Further Reading

Sprint called the move anticompetitive and complained to the FCC, and it wasn't alone. Other competing service providers and telcos like TW Telecom, EarthLink, XO Communications, and Level 3 protested, as did several members of Congress. A government office known as the US Small Business Administration Office of Advocacy raised a red flag as well.

"AT&T has cited its desire to move its customers to Internet Protocol (IP) based services as its rationale for discontinuing its discounted contracts for special access," the office said in an FCC filling. "In effect, AT&T is proposing to shift demand toward more expensive IP-based offerings by artificially increasing the price of its TDM services. Without discounted contracts, purchasers of special access will be forced to pay higher rates for TDM services, and the increased costs will inevitably be passed on to consumers. While the evolution to an all-IP network is something for small business consumers to look forward to, it should not be financed through artificial price increases in the special access market."

Sprint has estimated that the price it pays AT&T for backhaul would go up 24 percent in some markets, and that backhaul accounts for about 30 percent of each cell site's operating expenses, according to the Journal. "Verizon Wireless and T-Mobile US, Inc. could also be affected in areas where they have to buy backhaul from AT&T. T-Mobile could feel less pain from the price increase because it has deliberately tried to purchase backhaul from a broad range of providers, according to a person familiar with the carrier's network," the Journal report said.

AT&T says its customers are confused. In its decision yesterday, the FCC said, "AT&T responds to Petitioners’ arguments by asserting that they largely reflect confusion over the purpose of the tariff revisions and how the sunset of the five- and seven-year term plans will actually operate. AT&T argues that the mere elimination of a discount plan cannot violate section 201(b) because that section does not obligate AT&T to maintain any specific type of discount plan. AT&T asserts next that this tariff proceeding is not a proper forum for Petitioners to challenge the reasonableness of the rates that would remain following the proposed eliminations of discount plans. AT&T further disputes that this filing is a restructured service since AT&T’s tariff revision does not replace any existing service or option. Finally, AT&T argues that the Petitioners that cited concerns about how these revisions would impact specific contract tariffs misunderstand how these provisions would work."

In a statement e-mailed to Ars, AT&T said, “We continue to meet with our customers in a good faith effort to address their needs. As the transition to more robust and efficient Internet-based network and services moves forward, we will remain flexible in attempting to meet their needs.”

In a recent congressional hearing, AT&T Senior VP James Cicconi was asked how his company could raise prices 24 percent if it was operating in a competitive market. "I don't think we've raised prices; I think we eliminated some rate plans," Cicconi said.

Feld said the FCC decision shows that new chairman Tom Wheeler "is not going to let AT&T rush him. This was a test." At first, AT&T argued that it didn't even need FCC approval to raise rates, but the FCC forced the company to file a request, Feld said.

That doesn't mean AT&T won't ultimately be able to raise prices, though. Telecom investment firm Stifel said it "doubt[s] the FCC will ultimately prevent the phase-out outright, though we wouldn’t be surprised if it seeks changes to lighten the fallout somewhat."